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Warrantable Versus NON-Warrantable Condo Mortgage Guidelines

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Warrantable Versus NON-Warrantable Condo Mortgage Guidelines

This BLOG On Warrantable Versus NON-Warrantable Condo Mortgage Guidelines Was UPDATED On April 30th, 2019

A condominium unit is an apartment that is individually owned by a private homeowner. There are differences between Warrantable Versus NON-Warrantable complexes. The difference between Warrantable Versus NON-Warrantable units is that non-warrantable condos does not meet Fannie Mae and/or Freddie Mac Mortgage Guidelines. To be classified as warrantable, 51% or more of the condo owners need to live in the cono complex. Lenders have different guidelines on Warrantable Versus NON-Warrantable Condo Units:

  • Condominium loans are much stricter than single family home mortgage loans
  • This is because not only does the condominium unit buyer needs to qualify for a condominium loan but the condominium complex needs to qualify
  • Condo complex meet the lender’s lending guidelines and standards
  • Condominiums are viewed riskier to mortgage lenders
  • Lenders have higher credit standards apply for condominium mortgage loans

Purchasing A Condominium With FHA Loans

Just because a home buyer is pre-approved with an FHA loan does not mean that the home buyer can go and put a purchase offer with any condominium unit.

  • FHA will not approve condominium mortgage loans unless the condominium complex is FHA approved
  • To see if the condominium is FHA approved, condo complex needs to be on the HUD Condo Approved List
  • If the condominium is not on this FHA approved list, ask the condominium homeowner association manager if the condominium complex is FHA approved
  • if it is not, then condo buyers need to seek another condominium where the condo complex is FHA approved.

What Is Difference Warrantable Versus Non-Warrantable

Condominium complexes are either classified as warrantable condos and non-warrantable condos.

  • A warrantable condo unit is a condominium complex that meets the eligibility for condominium mortgage loans to be sold to Fannie Mae and Freddie Mac
  • Residential mortgage lenders who originate condominium mortgage loans do not keep the mortgage loan on their books
  • Once they fund the condominium loan, they package these loans up to and sell them on the secondary market which is either Fannie Mae or Freddie Mac
  • In order for Fannie Mae or Freddie Mac to purchase closed loans from mortgage lenders, they need to be warrantable condo loans

Non-warrantable condo loans are condominium complexes that do not meet Fannie Mae or Freddie Mac lending guidelines and do not meet conforming lending guidelines.

  • Fannie Mae and Freddie Mac will not purchase condominium mortgage loans that are secured by non-warrantable condo projects
  • To be classified as a warrantable condo project, 51% of the condominium unit owners need to be owner occupant primary residence condominium unit owners
  • Condotel units are considered non-warrantable condominium units

How Can I Find Out Whether A Condo Is Warrantable Versus Non-Warrantable Condo

There are so many cases where a condominium unit buyer gets a pre-approval. They do not have a solid pre-approval letter and submits a purchase offer on a condominium unit for a 5% down payment condo conventional loan. Everyone is under the assumption it is a warrantable condo and goes through the mortgage application and approval process to find out at the last minute that the condominium project is a non-warrantable condominium complex and the loan gets denied.

  • One of the first things a condominium mortgage lender should ask before anything else is whether the condominium project is a warrantable condo or non-warrantable condo project
  • The mortgage loan originator should provide the buyer with a condominium questionnaire to have the condominium homeowners association manager to complete and sign
  • The mortgage loan originator should get clearance from the mortgage underwriter whether the condominium complex is a warrantable condo
  • If it is not, then condominium cannot be done as a conventional loan and need to find a non-warrantable condo mortgage lender
  • A condominium complex that has over 51% of the condominium units that are rentals is considered a non-warrantable condo project
  • The only way you will get financing on a non-warrantable condo unit is through a portfolio lender

How Can I Get Financing For A Non-Warrantable Condo Unit?

Buyers who are interested in buying a non-warrantable condo, a traditional lender cannot do the mortgage loan.  Non-warrantable condo and condotel unit mortgage lenders are portfolio lenders.  What is a portfolio mortgage lender?

  • A portfolio mortgage lender is a lender that does not sell their loans to the secondary market
  • Portfolio lenders will keep the loans they originate in their books
  • Portfolio lenders will normally just offer adjustable rate mortgages, also known as ARM

Here are the qualification requirements for non-warrantable condo unit mortgage loans:

  • Minimum 20% down payment
  •  A minimum credit score of 680
  • Minimum loan size of $100,000
  • Non-warrantable condo unit needs to be meet the following requirements
    • 500 square feet
    • have one bedroom
    • have a functional kitchen
  • 30-year loan program but adjustable mortgage rate loans only: 3/1 ARM, 5/1 ARM, 7/1 ARM
  • Maximum 40% debt to income ratio and one-year reserves for both the primary property ( if the condo is a second home or vacation home ) and the new non-warrantable condo unit

Condotel Financing

Condotels are privately owned condominiums within a hotel complex or resort where the hotel homeowners association manages the condotel unit.

  • Condotel units are considered non-warrantable condos and portfolio lenders who finance non-warrantable condo units can finance condotel units
  • The same mortgage lending standards apply with condotel financing as with non-warrantable condo units
  • However, the down payment requirement is 25% versus the 20% required for non-warrantable condo units

Gustan Cho Associates Mortgage Group are condotel and non-warrantable condo experts. Please contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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